Archive for August, 2012

TD, Fidelity and Schwab get green light to custody assets of advisors who use National Advisors Trust

Thursday, August 30th, 2012

According to an article published by RIABiz, National Advisors Trust (NATCO) has “dramatically changed its business model.”  While NATCO previously required advisers to keep certain trusts assets custodied in-house, the firm will now allow advisers to use trust administrative services from NATCO and custody the assets elsewhere.  However, advisers will pay a slightly higher cost to NATCO if they choose not to custody the assets in-house.  According to NATCO, shareholder advisers will still pay a lower fee than non-NATCO shareholders advisors, regardless of where the assets are custodied.

NATCO has recently begun to offer trust services through platforms on TD Ameritrade and Fidelity.  NATCO is still in talks with Schwab about offering services on their platform.

SEC pays first whistleblower award

Wednesday, August 29th, 2012

Last week, the SEC’s Office of the Whistleblower announced its first award of $50,000 to an anonymous whistleblower who helped to uncover a securities fraud that resulted in the SEC imposing over $1,000,000 in sanctions.  The $50,000 award represented 30% of the approximate $150,000 collected so far by the SEC.  Pursuant to Dodd-Frank rules, though, the whistleblower will continue to receive 30% of all money collected by the SEC under the sanction.  Notably, the Office of the Whistleblower rejected a second whistleblower’s request for an award in the same case.  The whisteblower rules permit payments to more than one whistleblower, but, as stated by Sean McKessy, Chief of the Office of the Whistleblower, “the second whisteblower came in after the first one and failed to contribute significantly to what the SEC knew by that time.”

 

SEC pays first whistleblower award

Wednesday, August 29th, 2012

Last week, the SEC’s Office of the Whistleblower announced its first award of $50,000 to an anonymous whistleblower who helped to uncover a securities fraud that resulted in the SEC imposing over $1,000,000 in sanctions.  The $50,000 award represented 30% of the approximate $150,000 collected so far by the SEC.  Pursuant to Dodd-Frank rules, though, the whistleblower will continue to receive 30% of all money collected by the SEC under the sanction.  Notably, the Office of the Whistleblower rejected a second whistleblower’s request for an award in the same case.  The whisteblower rules permit payments to more than one whistleblower, but, as stated by Sean McKessy, Chief of the Office of the Whistleblower, “the second whisteblower came in after the first one and failed to contribute significantly to what the SEC knew by that time.”

 

SEC proposes rule allowing general solicitations for Rule 506 and 144 private placements

Wednesday, August 29th, 2012

On August 29, 2012, the SEC held an open meeting to vote on a rule proposal that would allow issuers using Rule 506 under Regulation D to use general solicitations under certain conditions.  The SEC had 90 days from the JOBS Act being signed in to law to make the rule changes to allow general solicitations.  This deadline has passed.  The Commissioners approved the proposal by a vote of 3-1, although not all Commissioners were happy with the process the SEC went through.

The rule proposal will allow general solicitation where the offering is only sold to accredited investors.  Currently, Rule 506 offerings can be sold to a certain number of non-accredited investors.  Issuers can continue to sell offerings to non-accredited investors as long as they don’t use general solicitations.  All Commissioners made a point of emphasizing that issuers will have to put reasonable steps in place to verify the accredited status of investors.  Currently, most issuers have prospective investors complete a questionnaire to confirm accredited status, but little verification is done regarding the investor’s answers.  It would seem that more would now be required.

From the open meeting, it would appear that the rule proposal will be rather straightforward considering the requirements were listed in the JOBS Act.  The more interesting aspect of the open meeting was the disagreement amongst Commissioners on the how the rule proposal was handled.  Because of the quick turnaround (90 days) that the SEC was presented with in the JOBS Act, the assumption was that the SEC would propose an interim final rule that would become effective immediately upon proposal, and be changed if later deemed necessary.  At some point close to the 90 day requirement Chairman Schapiro decided that the interim final rule was not appropriate and the SEC would propose a a rule.  Commissioner Paredes and Gallagher took particular issue with this change and the delay it caused.  They voted in favor of the proposal, but said that it was just to push the rule forward.  Chairman Schapiro, prior to calling a vote, stated that she found it interesting that the Commissioners took issue with the proposal when nobody has taken issue with the delays in Dodd-Frank implementations.  Ms. Schapiro pointed out that with Dodd-Frank, “everyone says ‘go slow, go slow, don’t propose anything unless it’s perfect.’ ”

Commissioner Aguilar voted against the proposal because it didn’t contain any measures to protect investors that all believe will become more vulnerable to fraud with the broadening of the solicitation allowances.

AdvisorTV: The Road to Member Summit Series Launches

Monday, August 13th, 2012

This past June, SourceMedia visited our office and set up a studio in the Board Room to produce a 10-part video interview series with MarketCounsel’s senior management team joining Brian Hamburger for candid, one-on-one discussions about the research and planning that goes into the Member Summit event as well as their insights towards the inspiring thought leaders, timely sessions, and overall conference agenda.

In the first segment entitled, Assembling a Practice, Managing Risk, Brian discusses the biggest challenges investment advisers are facing and how to manage risk with MarketCounsel’s Gary Davis Jr. Future segments will be airing weekly each Thursday and I’ll continue keep you updated through @MarketCounsel.

This is the 2nd series that MarketCounsel has participated in with AdvisorTV and segment archives will be hosted on the new and improved AdvisorTV website .

Challenges and Opportunities in the JOBS Act

Tuesday, August 7th, 2012

According to an article in AdvisorOne, certain provisions within the Jumpstart Our Business Startups (JOBS) Act present investment advisors with a number of new challenges and opportunities with high-net-worth clients, as the legislation increases investor visibility and access to several alternative private investment structures.

First, the JOBS Act enables non-accredited investors to invest alongside higher net worth angels under the new “crowdfunding” provisions.  Crowdfunding allows for pools of small individual investments in startups and other early-stage ventures.  The article states that advisors can expect to have more conversations in the near future with their non-accredited investor clients about the merits of specific investment offerings and venture investments in general.

Similarly, according to AdvisorOne, advisors should prepare to engage in many more discussions with their high net worth clients about hedge funds, managed futures and other privately-issued alternative investment fund.  This is because the JOBS Act requires the SEC to amend Regulation D to drop the prohibition on “general solicitation and advertising” for private offerings under Rule 506, as long as all of the investors in those funds are accredited.

Time to shut down Finra’s arbitration panels?

Tuesday, August 7th, 2012

FINRA is once again accused of bias in favor of the brokerage industry, this time, in the context of its closed door arbitration proceedings.

“Sunlight is said to be the best of disinfectants,” the future Supreme Court Justice Louis Brandeis famously wrote in a 1913 article for Harpers’ Weekly, and now, almost 100 years later, there is evidence that Brandeis was right.

On July 9th Bloomberg News reported that, seemingly out of nowhere, FINRA fired three arbitrators in the months after a May 2011 case in which they awarded $520,000 to the estate of the late Robert Postell.  The finding was against Postell’s former broker, Merrill Lynch, a subsidiary of Bank of America Corp. One after another over a period of about a year, each of the three arbitrators on the Panel received what are known as “black spot” letters from FINRA, removing them from the roster of those empowered to adjudicate the thousands of lawsuits brought each year by Wall Street employees and customers against financial firms.  FINRA officials have maintained that these arbitrators weren’t removed because Merrill’s lawyer and executives complained about the sizable award against Merrill.  FINRA derives the vast majority of its more than $1 billion in annual revenue from securities firms, and executives in the industry serve on FINRA’s board of governors.

The column ruffled some feathers at FINRA, and on July 25 the organization took the remarkable step of reinstating all three arbitrators to the FINRA roster.  In a letter to the arbitrators, Linda Fienberg, the president of FINRA’s dispute resolution and its chief hearing officer, explained that “after reading the commentary” from Bloomberg View she and her fellow FINRA executives “re-opened the matter.”  They listened to tapes of the Postell arbitration proceedings and “reached a different conclusion regarding the alleged inappropriate conduct from the conclusion previously reached.”  Still, Fienberg alleged unspecified “inaccuracies” in Cohan’s reporting and disputed the causal relationship between the firing of the three arbitrators and the complaints from Merrill and its attorney about the Postell award.  “There is no validity to this assertion,” Fienberg wrote. “FINRA simply does not remove arbitrators from the roster based upon their awards, and never has.”

Meanwhile, Merrill Lynch’s lawyers have asked a federal judge in Atlanta to throw out the $520,000 award to the Postells, arguing that the arbitrators “exhibited evident partiality,” “misbehaved such that Merrill Lynch’s rights were prejudiced,” “exceeded their powers by taking over the arbitration, conducting hostile cross examination of Merrill Lynch’s witnesses on irrelevant topics” and “refusing Merrill Lynch’s request that the biased arbitrators recuse themselves.”  Merrill cited the termination of those arbitrators as the smoking gun showing they had done something egregiously wrong in the Postell arbitration.

Columnist Cohan, sharing the sentiment of many who have sat through a FINRA arbitration, called it a ”sham that so often passes for justice on Wall Street these days…The millions of people who either work there or who have brokerage accounts sign away, upfront, their legal right to resolve financial disputes in a court of law.  They are forced into FINRA arbitration and most don’t have a clue they have relinquished their ability to resolve it any other way….  FINRA’s treatment of the arbitrators – despite their reinstatements — illustrates just how shoddy the system is.  It needs to be scrapped, and those with a grievance against Wall Street should get their day in a real court.”

Q2 merger deals stalled, but private-equity-fueled national acquirers revved up prices

Tuesday, August 7th, 2012

RIA Biz is reporting that the second quarter of 2012 saw just 8 M&A deals, compared with 12 in the second quarter of 2011 and 17 in 1Q 2012. This information is based on information obtained from Schwab Advisor Services.

Some highlights from the article include:

  • The second quarter deals included $12.3 billion in assets compared to $13.1 billion in assets during 2Q 2011.
  • The average deal size year-to-date through June was $1.4 billion compared with $798 million for all of 2011.
  • In 3 of the deals during 2Q, the acquirer was a national firm.
  • 2 of the deals involved private equity (although it’s not specified if this overlaps with the national firms mentioned above, the subject of the article implies it does).

Loopholes in STOCK Act?

Friday, August 3rd, 2012

According to an article on CNN.com, the STOCK Act, which was signed in to law in April, contains flaws that may not stop insider trading.  The STOCK Act was passed to stop insider trading by members of Congress who learned “inside” information during Congressional hearings.  CNN’s staff investigated and discovered that a loophole in the STOCK Act may still allow family members to profit on insider information.

Under the STOCK Act, trades of $1,000 or more (on or after July 3) have to be reported to the House/Senate within 45 days.  However, CNN is reporting that the House and Senate have taken two different interpretations of the reporting requirements.  The Senate Ethics Committee issued a one page list of guidelines that says members, spouses, and dependent children all have to file reports; the House issued a 14 page memo that says spouses and children are not covered by the reporting requirement.  The discrepancy appears to have arisen from the fact that the Senate bill included a provision that covered spouses and children, but the House version, and the version signed into law, did not.  The Senate decided to include spouses/children in its reporting requirements to stick with the spirit of the law, but the House chose to follow the letter of the law and excluded spouses/children from the reporting requirements.  The Office of Government Ethics, which oversees all federal executive branch employees, sided with the House, informing its employees that their spouses and children don’t need to file these periodic reports.

The article says that family members may be able to profit on insider information.  However, the article does not make clear whether this would happen because family members are not prohibited from trading on the inside information or if it would just be harder to catch family members that do not have to file periodic reports.  Under the first scenario, family members would legally be able to trade on information learned by the member of Congress, while under the second scenario, the family members would be breaking the law.

Following the CNN report, the House has stated that they are looking at rectifying the situation.  According to the article, a GOP source said that the end result will make it clear that spouses and children of House members and their top aides carry out the law the way Senate sponsors intended.